What Is Covered Under Auto Insurance?
Six Main Coverages of Car Insurance and How They Work
Apr 3, 2009
Auto insurance is mandatory for drivers in all 50 U.S. states in some form or another. However, most drivers rarely, if ever, look at their auto insurance coverages to see exactly how they are protected financially in the case of an auto accident, natural disaster, or vandalism. This could be frustrating in an auto accident when the driver is surprised by a lack of coverage and finds he or she has to pay out-of-pocket.
Six types of auto insurance comprise every auto insurance policy. One is mandatory in all 50 U.S. states while the others are for the most part optional. Understanding these six auto insurance coverages can lead to drivers saving significant amounts of money simply by adjusting coverages, limits, and deductibles.
Auto Insurance: Six Types of Insurance Coverages
The six types of auto insurance are liability, collision, comprehensive, personal injury protection (PIP), medical payments, and uninsured/underinsured motorist coverage. All of these types of auto insurance with the exception of liability auto insurance are optional, but that doesn’t mean motorists should opt out altogether. Here’s what drivers need to know:
- Liability auto insurance. Liability auto insurance covers the driver’s legal obligation to pay for damage to the other car (property damage liability) and/or medical costs (bodily injury liability) when at fault in an auto accident. Most states require drivers to carry minimum liability coverage.
- Collision auto insurance. If the driver’s car is damaged in an auto accident, collision auto insurance helps to pay for the cost of repair. However, drivers with cars 10 years or older may want to consider dropping collision as any damage done to the car would likely result in a total loss.
- Comprehensive auto insurance. Comprehensive auto insurance covers theft; vandalism; flooding; fire; damage from tree branches; animal strikes; and windshield chipping, cracking, and replacement. Any driver who has had to pay out-of-pocket for a new airbag knows full well the value of comprehensive auto insurance coverage.
- Personal injury protection (PIP) auto insurance. If the driver and/or passengers are injured in an auto accident, personal injury protection auto insurance kicks in to help pay medical costs. PIP auto insurance also covers associated costs including lost wages, hired domestic help, and funeral expenses.
- Medical payments auto insurance. While PIP pays medical expenses for the driver and passengers, medical payments auto insurance is an added benefit to help pay for bodily injury. In no-fault auto insurance states where drivers must carry minimum PIP coverage, the state pays 80 percent of medical costs with drivers left to pay the rest. Medical payments auto insurance helps to pay the difference.
- Uninsured/underinsured auto insurance. If Driver A has inadequate or non-existent auto insurance coverage and strikes Driver B, the question of who pays for damages and/or medical expenses arises. In this type of auto accident, Driver B’s uninsured/underinsured auto insurance kicks in to help cover the cost of damages and/or medical expenses.
Auto Insurance: The Bottom Line on Auto Insurance Coverages
While many people feel they are simply too busy to look over their auto insurance policy and to try to comprehend the sometimes confusing terminology, it is essential to know how they are covered in cases such as car rentals and auto accidents. Furthermore, learning how to tweak liability, collision, comprehensive, PIP, medical payments, and uninsured/underinsured auto insurance can go a long way to saving money.
See related articles, “Understanding Auto Insurance Terminology,” “Money-Saving Tips for Buying Auto Insurance,” and “How to Lower the Cost of Motorcycle Insurance.”
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